NBER Working Papers and Publications

It is often asserted that consumers undervalue future gasoline costs relative to purchase prices when they choose between automobiles, or equivalently that they have high "implied discount rates" for these future energy costs. We show how this can be tested by measuring whether relative prices of vehicles with different fuel economy ratings fully adjust to time series variation in gasoline price forecasts. We then test the model using a detailed dataset based on 86 million transactions at auto dealerships and wholesale auctions between 1999 and 2008. Over our base sample, vehicle prices move as if consumers are indifferent between one dollar in discounted future gas costs and only 76 cents in vehicle purchase price. We document how endogenous market shares and utilization, measurement erro...

Analysts often examine the black-white test score gap conditional on family income. Typically only a current income measure is available. We argue that the gap conditional on permanent income is of greater interest, and we describe a method for identifying this gap using an auxiliary data set to estimate the relationship between current and permanent income. Current income explains only about half as much of the black-white test score gap as does permanent income, and the remaining gap in math achievement among families with the same permanent income is only 0.2 to 0.3 standard deviations in two commonly used data sets. When we add permanent income to the controls used by Fryer and Levitt (2006), the unexplained gap in 3rd grade shrinks below 0.15 standard deviations, less than half of...